Obamacare Will Boost Private Managed Care

Over 30 million newly insured patients under the Affordable Care Act (ACA) will receive coverage through the mandated Health Insurance Exchanges or the now-optional Medicaid expansion. Sounds like government expansion, right? Well, not exactly.

Healthcare reform may not actually lead to the vast expansion of government that some have claimed. It turns out that privately-owned Managed Care Organizations (MCOs) will be the ones providing insurance plans on the exchanges. MCOs are also increasingly being relied on to manage benefits on behalf of state Medicaid. It is somewhat ironic that what many decry as government overreach will actually result in an expansion of patients managed by private insurers.

Now, is this good news or bad news for the life sciences industry? This column will explore these two key ACA provisions to explain how private MCOs are getting more closely involved, and what this could mean for pharmaceutical and medical device manufacturers.

State Medicaid: the trend toward managed Medicaid

One of the provisions in the ACA that has drawn a lot of attention is the expansion of the Medicaid population. The law offers incentives for states to increase their Medicaid eligible population to all patients over 65 years old with incomes below 133 percent of the federal poverty level. States opting to expand coverage receive 100 percent federal funding for these new enrollees in the first three years, with funding then tapering down to 90 percent through 2020. There has been mixed reaction from individual states with some rejecting the expansion (e.g., Texas and Georgia) others embracing it (e.g., California and Illinois) and others still undecided. While the funding for these new patients certainly comes from the government, the administration of benefits for Medicaid has been increasingly shifting toward MCO managed Medicaid.

Already, it is estimated that ~65 percent of Medicaid patients across the United States have their benefits administered via managed Medicaid. This figure will only increase in the future as more states determine that they do not have: the budgets to carry the overhead needed for administering these benefits or the expertise and infrastructure needed to manage care and control cost. By expanding the Medicaid population, the ACA is indirectly increasing the number of patients being managed by private MCOs.

Innovative cost containment tools are being applied to managed Medicaid populations by MCOs just as they are for privately insured patients. MCOs have an incentive to deliver care in a cost effective manner because states typically pay them a fixed amount per patient. Benefit requirements vary from state to state, but in general, managed Medicaid is usually allowed to offer benefits that either match or exceed the state's minimum requirement (such as their preferred drug list). This flexibility opens opportunities for MCOs to implement new payment models with physicians such as capitated contracts with accountable care organizations (ACOs). A frequent criticism of government-run programs is that they tend to be too bureaucratic and inefficient. By allowing the private market to manage Medicaid patients, states are able to take advantage of the latest innovations and cost containment trends from more nimble MCOs and ACOs.